Taxation of companies

Parameters for Determining Income Subject to Income Tax

Companies resident in the Isle of Man are subject to income tax on their worldwide income. Companies incorporated outside the Isle of Man but with a place of business there will be taxed on their Manx source income. Companies are, in general, taxed at 0%. However, a 10% rate of tax applies to income received by a company from banking business, on profits of resident and non-resident companies who carry on retail business in the Isle of Man and which have a taxable profit of more than £500,000 from such business. In addition, income derived from land and property in the Isle of Man (including property development, residential and commercial rental or property letting and mining and quarrying) is subject to Manx tax at 20%. A company may also elect to pay the 10% tax rate on its taxable profits.

The Tax Base

Taxable income is, broadly, profits from Island situated property and the profits of a trade, business or vocation less allowable expenses. Such expenses will include expenditure incurred wholly and exclusively for the purpose of the trade, interest payments to Isle of Man lenders and capital allowances for buildings, plant and machinery.

Income received by companies that is derived from land and property in the Isle of Man (including rental, mineral extraction and property development) is taxed at a rate of 10%. Where the dividend or interest payment is made from outside the Isle of Man and subject to withholding tax in the country of payment, it is possible that unilateral relief may be claimed against Isle of Man income tax to prevent a double charge to tax on the same income; the amount of relief will be such that the total (Isle of Man and overseas) tax suffered on the overseas income will be no more that if the income had been wholly Manx source.

A 10% rate of tax also applies to companies which carry on retail business in the Isle of Man and which have a taxable profit of more than £500,000 from such business. All other companies carrying on retail business will continue to pay tax at the standard zero rate. The £500,000 limit is reduced proportionately for corporate taxpayers with associated companies which also carry on retail business in the Island, or where the accounting period of the company is less than 12 months.

Capital Gains

Capital gains arising in a business are not themselves subject to income tax but may (if the gain is in respect of an item on which capital allowances have previously been claimed but where the sale price exceeds the unallowed portion) give rise to a balancing charge.

Depreciation

Assets are depreciated in accordance with their estimated useful life. However, for tax purposes capital allowances are available on qualifying expenditure to reduce the taxable profits.

Taxation of Shareholders

No withholding tax is required to be deducted from any dividend or interest paid to non-residents.

Film and Television Industry Incentives

The earnings of certain individuals involved in film production in the Isle of Man may also receive favourable treatment.